Grain futures lower, soybeans set for weekly decline on weak China demand

Grain futures dropped on Friday as stronger dollar and ample global supply weighed on prices. Meanwhile, soybeans demand outlook seems grim as the worlds biggest consumer, China, is experiencing a cash squeeze and latest data points at economic growth slowdown.

On the Chicago Mercantile Exchange, soybeans futures for July delivery traded 0.03% lower on the day. The oilseed stood at $14.9650 a bushel, ranging between days high and low at $14.9963 and $14.8900 respectively.

Luke Mathews, a strategist at Commonwealth Bank of Australia, wrote in a report: “Weaker Chinese economic activity is raising fears for a marked slowdown in oilseed import demand this year, which in turn is weighing on prices.”

Interbank lending rates jumped in China this week to a record level due to a cash crunch as growth confidence in the Asian country is declining. The country’s preliminary reading of the HSBC Purchasing Managers’ Index, showed China’s manufacturing shrank with a faster pace this month. The flash reading of 48.3, which, if confirmed, will be the lowest since September, mismatched the 49.1 forecast by a Bloomberg News survey and is worse than May’s final value of 49.2. This comes after The World Bank reduced its forecast for the nation’s economic growth to 7.7%, down from 8.4%. Earlier, during the last week of May, the IMF cut its economy growth forecast for China to 7.75%, down from 8%.

Premier Li Keqiang said last night the financial system needs to do a better job of supporting the economy. The government is expected to boost credit support for strategic industries and those that are labor-intensive.

Wheat declines

Wheat, like other grains continues with its bearish trend, pressured by ample global supply prospects and stronger dollar. On the Chicago Mercantile Exchange, wheat futures for July delivery lost 0.40% on the day, extending losses from Thursday. The grain traded at $6.9763 a bushel at 9:48 GMT, marking a new daily low. Days high stood at $7.0350 a bushel.

Increased wheat supply is expected by Australia, Russia and Ukraine’s Black Sea region and Europe. Worldwide wheat output in the 2013-2014 crop year is expected to be 6.1% higher than the preceding period and near the record level of the 2011-2012 season, totaling 695.9 million metric tons of wheat, the USDA said on June 12. Canada is expected to boost its output by 6.6%, Russia by 43% and a 24% jump is expected in Ukraine, which will counter an 8.3% drop in the U.S.

Corn also down

Corn also fell on Friday as stronger dollar weighed on the dollar-priced commodity and favorable weather conditions in the U.S. will aid development of late planted crops like corn and soybeans.

On the CME, corn futures for July delivery lost 0.70% for the day. The grain traded at $6.6788 at 9:58 GMT., extending losses for a second consecutive day. Prices ranged between daily high and low at $6.7225 and $6.6663 per bushel respectively.

According to a DTN report, drier and warmer weather will settle in the Midwest, the U.S. biggest growing region, that will favor development of late planted crops. That will benefit both corn and soybean crops.

The USDA said U.S. corn stockpiles before the 2014 harvest will total 1.949 billion bushels, well above market projections of 1.829 billion. This fall’s U.S. harvest will also exceed the 13.82 billion bushels expectations and will total 14.005 billion. The record domestic output will more than double inventories before the 2014 harvest, said the agency.

In its crop progress report on Monday, the USDA said that 92% of the nation’s corn crop emerged as of June 16, compared to 85% in the previous week. However, this is lower than the comparable week last year’s complete emerge of the crop and the five-year average of 97%.

The grain’s condition is comparable to last year’s with differences of a minor 1% in the “Poor” and “Excellent categories”. During the week ending June 16, corn of “Very poor” and “Poor” quality stood at 8%, “Fair” was 28% and 64% of the crop fell in the “Good” and “Excellent” sections.